. Consider a simultaneous move game between a teachers’ union and a university. Each agent can...

. Consider a simultaneous move game between a teachers’ union and a university. Each agent can bargain hard (H) or accommodate (A). If both the parties bargain hard (H,H), each would gain nothing. If only one party bargains hard the accommodating party gets a benefit of $1 million while the bargaining party gets a $5 million, while if they both accommodate (A,A), they each get $3 million in benefit.

a. Draw the bargaining game in normal form (a matrix).

b. Does either player have a strictly dominated strategy? b. Find each party’s best response and the Nash equilibrium in pure strategies.

c. Is this Nash equilibrium Pareto efficient? Why or why not?

d. Describe a scenario in which the union might threaten an action that might ensure they get the outcome they would prefer.

Expert Solution

d) If the teacher's union announce that they will play H (bargain hard) no matter what, then the University will think that it is better to play A (accomodate) than to play because if they play H, then they will gain nothing whereas if they play A, they will gain $1 million. In this scenario, the threat issued by the teacher's union may compell University to play A and Teachers union will gain $5 million which is their desired outcome.

Rahul Sunny answered 7 months ago

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